China moves from tea to 'black gold'

In southwestern China, farmers have grown a famous green tea for centuries. Now, farmers are embracing the coffee bean. NBC's Adrienne Mong reports.

PU'ER, YUNNAN PROVINCE – The name of this area is synonymous with the delicate leaf prized by tea aficionados in China and beyond.

For at least 2,000 years, families have cultivated Pu'er tea in the rolling hills of Yunnan, bordering Myanmar.

The tea is known for its intense earthy flavor, which devotees say improves with age. However, it’s also valued for reputed health benefits: the ability to lower cholesterol and high blood pressure, reduce fat, and cleanse the liver of toxins.

All this led to crazy auction prices few years ago. Reports in 2007 suggested some aged vintages of Pu’er were going for as much as $10,000 for 10 grams (0.35 ounces).

One year later, that bubble burst. The market for this special fermented tea collapsed after a buying frenzy turned into a selling spree by unscrupulous wholesalers who had driven up prices artificially.

Many farmers who were caught up in the frenzy were left with nearly worthless supplies of tea, but many others had carefully spread their risk.

To coffee.

Adrienne Mong

A tea farmer in Pu'er, where the climate and topography also favors the production of coffee.

Nestle comes to YunnanIn 1988, Yunnan produced 1,500 tons of coffee beans. This year, it’s expected to produce 35,000 tons, and that figure could double in five years. Coffee is now the province’s third-largest export product after tobacco and flowers.

“Before I started growing coffee, I couldn’t afford a house like the one I live in now,” said Wang Zhongxue, a robust 72-year-old who cuts a striking figure with his machete. “My house back then was made of mud and the living conditions were terrible. When it rained outside, it rained inside, too.”

Last year, Wang earned around $18,000 from his coffee plants. Chinese farmers on average earn about $900 a year.

The toothy farmer said he was introduced to the idea of growing coffee back in 1992 by experts, both Chinese and foreign. “They taught us the whole system,” he said.

Some of them came from Nestle, the Swiss foods giant.

“We are in a mountainous area, the climate is good, so it’s a suitable area to grow coffee,” said Wouter De Smet, manager of the Nestle Agricultural Service based in Pu’er.

As early as 1988, Nestle decided to support the cultivation of Arabica beans in Yunnan and has been working closely with local officials to develop the company's program.

“We are working with the farmers on a [relationship basis]…so we give training and technical assistance to the farmers, which is completely free to the farmers,” explained De Smet. Training and assistance includes everything from growing to processing to marketing.

Roughly 80 percent of the farmers selling beans to Nestle are small scale, "smaller than three hectares," (approximately seven acres) according to De Smet. During the last season, after the harvest (September-February), the smallest farm delivered Nestle five pounds whereas the largest farm delivered 413 tons.

“We buy directly from the farmer without need of the middleman or the local trader,” said De Smet. That way, Nestle can better monitor the quality of the coffee beans – half of which are exported to Nestle factories worldwide and the other half goes to its factories in Dongguan.

The tasting center inside the Nestle compound in Pu’er was tiny, but the first thing we saw was a table with cups of coffee on top and spittoons next to each chair for the Nestle tasting panel.

Two or three other colleagues joined De Smet in blind taste tests to check the quality.

Adrienne Mong

Coffee beans are laid out to dry in a Dai village in Pu'er. The Dai are an ethnic minority in Yunnan.

On any given day, they might taste-test 150 cups.

“We are not drinking,” De Smet emphasized.

If the beans fall below Nestle’s standards, the delivery is rejected, but De Smet said they also try to advise the farmer how to make improvements.

If the coffee passes muster, the farmer is paid right on the spot – either in cash or by bank transfer, depending on the amount.

The allure of 'black gold'Understanding and tracking coffee prices is another skill Nestle provides to the farmers.

"Our farmers are becoming speculators," said De Smet, only half-jokingly.

Nestle announces coffee prices every Monday and Thursday via text message to all the farmers' cellphones.

"We also get 150 to 200 calls from other farmers checking on the price," he said. "It's up to the farmer to decide whether to sell. There is no contract. The farmers are free to choose."

Wang, the elderly farmer, said his daughter and her friends track coffee prices on computers. “When the price goes up, we know it immediately,” he said.

Adrienne Mong

A Nestle lab worker prepares coffee beans for a taste test.

Sometimes dubbed “black gold,” coffee is the second most widely traded commodity after oil. And in the past year, coffee prices have gone up nearly 92 percent on major exchanges around the world.

“Some farmers are worried that coffee prices have risen so high now,” said Li. Zhongheng, director of the Pu’er City Experiment Demo Coffee Farm. “They remember the Pu’er bubble," he said, referring to the fall in tea prices.

Li, an agriculture official who retired 10 years ago, started training local farmers in the region on how to grow coffee. His farm is part of the province's more recent efforts to encourage farmers in Pu’er to try growing coffee – ﻿as outlined in the Pu'er and Yunnan governments' five-year plans.

But “we don’t encourage tea farmers to stop growing tea and switch to coffee,” said Li. “We don’t support that.”

In fact, the farmers we visited were growing other cash crops in addition to coffee. Wang has mango trees, which also help to shade and protect his coffee plants.

Chen Bing, a 40-year-old farmer, abandoned corn and rice, mostly because they were too water-intensive, but he also farms tea in addition to coffee. “We depend on coffee when the weather is dry and on tea when the weather is too wet,” he said.

Starbucks’ “seed-to-cup” strategyLate last year, Starbucks announced it was going to get into the game and set up a government base farm in cooperation with Yunnan local officials. The plantation will also include a development center farmer support center, and processing facilities.

“The purpose of that [is] really to demonstrate how to grow coffee in an environmentally friendly and socially responsible [way] and also how to improve the coffee farmers’ life," said Wang Jinlong, president and chairman of Starbucks Greater China. ﻿He added, "﻿And really try to show and demonstrate…how to increase the yield.”

Adrienne Mong

Wang Zhongxue's family members sort through the "green beans" of this year's harvest.

And to ensure a steady supply of beans for the American coffee retailer – ﻿﻿also the world's largest.

Since entering the mainland market in 1999, Starbucks has nearly 450 stores in China itself and plans to triple that number to 1,500 by 2015. In 2009, the company introduced to its customers a coffee blend that includes beans grown in Yunnan, “South of the Clouds.”

The Yunnan coffee farm project marks the first time Starbucks is growing its own coffee directly – working with local farmers to grow and cultivate the crop – instead of just buying it locally or globally.

“It is our seed-to-cup overall supply chain strategy which will really back…our idea of making China a second home market,” said Wang.

Back in Pu'er, some farmers have taken to brewing their homegrown product.

For visitors, though.

Although De Smet and my colleagues all enjoy the taste of Yunnan coffee, the farmers have yet to embrace it in their diet.

“Sometimes I can’t get to sleep after I’ve had coffee,” said Wang Zhongxue, the farmer. “So I still drink tea.”